AUSTRALIA

1. GENERAL ECONOMIC SITUATION - 2002

Australia has continued to have one of the fastest growing economies in the industrialized world over the past year. GDP has grown by 3.6 percent over that period, despite a slowing international economy.

Australia has continued to maintain a low inflationary environment over the past year. Inflation for 2002 was 3.0 percent. Monetary policy has allowed inflation to be kept in check without significantly effecting domestic demand. The cash rate was increased twice over the past twelve months, each time by 0.25 percent to a rate of 4.75 percent by the end of the year.

Wage growth increased in 2002 to 5.0 percent per year, an increase from the previous two years where average growth was 3.5 percent per year.

During 2002, unemployment fell 0.5 percent from the start of the year, to 6.1 percent in December 2002.

Housing construction remained a strong sector, assisting to maintain a strong economy and maintaining good demand for timber products.

Dwelling approvals for November 2002 were up 26 percent in value and 5.7 percent in number compared to the same time the previous year. This was driven by the doubling of the government's first homeowner's grant which provided stimulus to the housing construction sector.

2. PERFORMANCE OF THE PAPER AND WOOD INDUSTRY - 2002

a. Consumption, production and trade

Consumption, production and trade of wood products in Australia: 2001/02 (`000m³)

Product	Production	Export	Imports	Apparent Consumption
Hardwood Sawnwood	1 106	53	104	1 127
Softwood Sawnwood	3 007	83	632	3 587
Medium Density Fibreboard	732	402.6	81.42	411
Particleboard	964	100	70	935
Plywood	201	19	116	298
Wood Pulp (kt)	1 100	3	314	1 411

Exports of Medium Density Fibreboard (MDF) have grown rapidly in the 1990s. The largest export market for Australian MDF is Taiwan, followed in importance by Japan, China (including Hong Kong) and Korea. Almost all imports of MDF into Australia came from New Zealand.

Apparent consumption of hardwood sawnwood fell by 10 percent in 2001/02, from 1 246 to 1 127 (000 m³), driven by a fall in local production, presumably reflecting results of the Regional Forest Agreements and policies of some of the State Governments.

Apparent consumption of softwood sawnwood reached an 11-year high in 2001/02. Local production increased by 28 percent compared to the previous year from 2 351 to 3 007 (`000 m³), driven by strong demand for housing timber.

Local production of wood pulp in 2001/02 was at its highest level in 10 years, reaching 1 100 kt for the first time in that period. Correspondingly, apparent consumption was also its highest level in 10 years.

Consumption, production and trade of pulp and paper products in Australia: 2001/02 (kt)

Product	Production	Export	Imports	Apparent Consumption
Packaging & Industrial	1 958.8	379	117.2	1 697
Tissue	202.6	30.2	49.6	222
Printing & Writing	621.6	157.7	677.1	1 141
Newsprint	407.8	12	223.2	619
Total P&Pbd	3 068.6	578.9	1 189.3	3 679

Apparent consumption of paper and paperboard declined in 2002 by 39 kt on 2001 levels. This was the second consecutive annual reduction in apparent consumption of paper and paperboard in Australia.

Printing and writing papers declined by 48 kt or 4.0 percent compared to 2001/02. At 2.3 percent per year, printing and writing papers are no longer the fastest growing sector of the Australian paper and board industry, and are well below the long-term growth rate for the world average of 3.1 percent per year.

Growth in apparent consumption of packaging paper and board recovered over 2001/02, increasing 65kt or 4.0 percent. While it is the largest sector of the paper and board industry in Australia, its growth rate is still above that of the industry as a whole.

Tissue consumption has remained static for the past two years. However, tissue remains a very competitive sector, and with a long-term growth rate of 2.8 percent, is second only to packaging paper and board in terms of growth.

b. Financial performance

Sales turnover for paper and paperboard: 2001/02 (AUDM)

The value of paper and paperboard consumed in Australia rose during 2002 to AUD3569M, an increase of AUD112M from 2001. This rise occurred despite a fall in apparent consumption.

Packaging & Industrial was the sector that experienced the highest growth in 2002. Sales increased by AUD148.6M or 12.4 percent compared to 2001 figures. With total sales for the year of AUD1345.6M, the Packaging & Industrial sector accounted for 38 percent of total sales in 2001/02.

Raw material sales, pulp and wastepaper, continue to be a small component of total sales, accounting for 2.1 percent of the total value of trade.

Tissue is estimated to have increased by 2 percent, closely correlating to GDP growth.

Since 1996/97 the sales value of printing and writing paper has increased at an average rate of 10 percent per year. Growth in Printing & Writing papers slowed in 2001/02. Sales in this sector increased by AUD28M or 3 percent.

The value of sales of newsprint increased in 2001/02 by AUD29M or 7 percent. An increase in local production of newsprint may account for the increased sales value, production increased by 15 kt or 4 percent in 2001/02.

c. Outlook for the future

Forecast future consumption of wood products in Australia (`000 m³)

Y/E June	Sawnwood	MDF	Particleboard	Plywood
2003	4 500	450	816	280
2004	4 700	450	816	295
2005	4 800	450	816	310
2006		470	735	320

Domestic demand for sawnwood in Australia is most heavily influenced by new housing construction. New dwelling commencement in Australia is forecast to fall in 2002/03, but recover in 2003/04 reflecting continued economic growth. Based on these forecasts, consumption for sawnwood is expected to remain at around 4 500 (`000 m³) with a small allowance for growth.

Based on ongoing growth in apparent consumption of plywood and LVL and forecasts for growth in the housing market, it is expected that underlying consumption for plywood and LVL will continue to grow over the longer term.

Consumption of MDF is forecast to continue to grow. The forecast assumes an average annual increase of less than 2 percent, which is conservative compared with actual increases in the past decade.

Forecast future consumption of pulp and paper in Australia (kt)

Y/E June	Packing & Industrial	Tissue	Printing & Writing	Newsprint	Total P&Pbd
2003	1 747.2	228.5	1 191.8	621.5	3789
2004	1 815.6	237.4	1 262.1	624.8	3 939.9
2005	1 894.5	247.6	1 344.8	628.6	4 115.5
2006	1 950.6	254.9	1 404.7	631.1	4 241.3
2007	1 998.1	261.1	1 456.2	633.2	4 348.6

The prognosis for the international newsprint market is uncertain as a consequence of static consumption levels and falling prices in Australia.

Tissue consumption correlates well with growth in GDP and is forecast to rise over the next five years. In 2002/03 it is expected that local production capacity will increase with several new facilities being proposed.

The future of the printing and writing paper market is well assured as it has a strong long-term growth rate and the demand drivers for the main grades are healthy. Some change in the Australian industry could be expected in response to increasing globalization of what is already a very competitive market.

Packaging and industrial paper and board is the largest sector in the pulp and paper industry in Australia. There is a strong correlation between this sector and GDP growth, with continued growth over the next five years expected.

3. ISSUES OF PARTICULAR INTEREST

a. Environmental aspects

The Australian Government's position is that it does not intend to ratify the Kyoto Protocol at this time. This has been reiterated by the Minister for the Environment a number of times during 2002.

The Commonwealth Government initiated a Government-Industry Climate Change Dialogue process giving Australian industry the opportunity to advise the Government on its preferred policy package to assist the Government in achieving its policy objective of meeting Australia's Kyoto target (regardless of ratification) and establishing a permanent path of emissions reductions. APIC is chairing the Energy Intensive Manufacturing working group of this process and is due to report to the Government in March 2003.

In February 2002, the United States and Australia established a `Climate Action Partnership'. The intention of this partnership was described as the facilitation of practical joint action in areas such as climate change science and the development of tradable credit systems for renewable energy.

An interim Australian Standard for Carbon Accounting for Greenhouse sinks, Part 1: afforestation and reforestation, AS4978.1 (Int) - 2002 was approved on behalf of the Council of Standards Australia on 14 June 2002. The standard requires a project plan that enables monitoring and comparison of forecast versus actual results. It does not specifically require that a carbon account be audited because it is assumed that accounts may be prepared for a range of reasons.

b. Progress in sustainable forest management and certification

Initiatives to certify forest management and label forest products have emerged in response to community concerns over forest conservation and sustainable forest management. Various operators in the forestry and forest products industries in Australia are progressing on forest management certification.

There are no apparent signs of demand in the Australian market for certified wood products, although building for the 2000 Olympic Games spurred a brief flurry of interest.

Process management systems

• The established process management system is the International Organization for Standardization's ISO 14000 environmental management system, which has become a standard in Australia across all industry sectors.

• Many major forest managers, wood processors and pulp and paper producers have achieved or are aiming to achieve certification of compliance with this standard. Recent companies to achieve the standard include Forestry Tasmania and the Forest Products Commission in WA.

• Some other major companies have developed their own in-house policies and standards for managing their environmental responsibilities. Companies using this approach include Norske Skog Australia, Weyerhaeuser Australia and Hancock Victorian Plantations.

Performance management systems

• There is currently little substantive third party certification of forest management in Australia to nationally or internationally recognized standards.

• The two main initiatives with regard to performance management systems relevant to Australia are the Australian Forestry Standard and Forest Stewardship Council.

Australian Forestry Standard (AFS)

• The Australian forest and wood products industry is developing the AFS to provide a national forest management certification system for both natural and plantation forests.

• The AFS has been developed for forest management certification, designed to provide for all forests managed for wood production, regardless of type, scale of ownership or whether the forests are native or plantation.

• The AFS is based on criteria drawn from the Montreal Process Criteria and Indictors:

- protecting and maintaining biological diversity;

- maintaining productive capacity;

- maintaining ecosystem health and vitality;

- protecting soil and water resources;

- maintaining the contribution of forests to carbon cycles;

- protecting and maintaining natural and cultural (social, religious and spiritual heritage) values;

- maintaining and enhancing long-term social and economic benefits;

- ensuring a systematic approach to forest management.

• The AFS was launched in mid October 2002. It is expected that the standard will be ready across Australia within the next few months for companies in the forest industries to apply for certification.

Forest Stewardship Council (FSC)

• As of the end of 2002 there are no FSC certified forests in Australia.

• The inaugural FSC national stakeholders' conference took place in Canberra in May 2002. Over 80 representatives from a broad range of stakeholders attended, indicating a high level of interest in FSC certification in Australia. An Australian FSC working group is expected to develop regional guidelines for Australia.

• Fletcher Challenge Forests has recently gained certification for its plantations in New Zealand. Its primary driver for obtaining FSC certification was to gain market access into the USA.

• Hancock Victorian Plantations Pty Ltd has engaged a FSC scooping assessment and appears to be progressing towards full certification.